Latest / Scaling Up with Fexingo: How Small Businesses Become Mid-Market Companies / How a Hot Sauce Brand Scaled to 10 Million by Fixing Distribution
Transcript
- Lucas: In 2020, a hot sauce brand called Fiery Fuego was doing about 800,000 dollars a year, mostly from farmers markets and a basic e-commerce site. The founder, Maria Torres, had a cult following in Chicago, but she couldn't get her sauce into grocery stores consistently. Four years later, they crossed 12 million. Luna: That's a massive leap. What was the bottleneck? It sounds like distribution. Lucas: It was exactly that. She had the product—actually won a couple of Scovie Awards—but she was doing all the delivery herself. She'd pack jars into her Prius, drive to stores in a 50-mile radius, and sometimes stores would run out for weeks because she couldn't restock fast enough. Luna: So she was effectively a one-person supply chain. How did she break out of that? Lucas: She made two big moves in 2021. First, she signed on with a specialty food distributor called KeHE. That gave her instant access to about 3,000 natural food stores across the Midwest. Second, she launched a direct to consumer subscription—three bottles every two months—which gave her predictable revenue. Luna: Wasn't KeHE a big leap? I'd imagine distributors have minimums and strict requirements. Lucas: They do. KeHE required her to have a specific packaging format—a six-bottle case, shrink-wrapped, with a UPC. She had to invest about 50,000 dollars in new packaging equipment. That was financed partly through an SBA loan and partly from revenue she'd saved during the pandemic boom. Luna: And the subscription—did that help with the cash flow for that investment? Lucas: It did. The subscription model meant she had a chunk of revenue coming in every month, regardless of retail orders. By the end of 2021, she had about 2,000 subscribers. That covered her fixed costs and gave her the confidence to take on more retail risk. Luna: What about the supply side? Hot sauce depends on peppers, and pepper prices can be volatile. Lucas: That's the next part of the story. In 2022, a poor harvest in Mexico drove the price of habaneros up by 40 percent. Maria had been buying spot market, so her margins got crushed. She realized she needed to lock in contracts with farms. Luna: So she went from spot buying to forward contracts. That's a big shift for a small company. Lucas: Exactly. She negotiated a two-year deal with a farm in Yucatan, guaranteeing a set price per pound. That stabilized her cost of goods sold at around 28 percent of revenue, which is actually better than the industry average of 30 to 35 percent. And it let her keep retail prices steady while competitors raised theirs. Luna: That's smart. Now, what about the actual distribution logistics? Did she have to build a warehouse? Lucas: Initially she leased a 5,000-square-foot facility in a Chicago industrial park. That was a huge step up from her home kitchen. She also hired a logistics manager—her first non-production employee—to handle all the outbound shipping to KeHE and direct to consumer fulfillment. By 2023, they were shipping 50,000 cases a year. Luna: It sounds like the subscription model was the silent engine. It gave her consistency. Lucas: It really was. By 2024, subscriptions made up about 35 percent of revenue. That recurring base gave her the leverage to negotiate better terms with KeHE, because she wasn't desperate for retail orders. She could walk away from a bad deal and still be fine. Luna: That's a great lesson for any small business owner listening. If you can build a direct relationship with your end customer, you control your own destiny. Lucas: Absolutely. And I'll add: the subscription also solved a marketing problem. She used the subscriber list to test new flavors, like a mango-habanero and a smoked chipotle. That gave her data before pitching retailers. Luna: So retailers saw proven demand, not just a pitch. That's smart. Lucas: Right. And that brings us to another key point—her retail expansion strategy. She didn't go after every chain. She focused on regional grocers like Jewel-Osco and Hy-Vee, where her Midwest fan base already existed. That made sell-through faster because people were already asking for it. Luna: Instead of trying to get into Whole Foods or Walmart right away. Lucas: Exactly. She waited until 2024, after she had proven she could supply regional chains reliably. Only then did she approach a national retailer. And she got a limited placement in 500 stores, which she's now expanding. Luna: I want to jump back to the numbers for a second. When she made that initial leap with KeHE, what was the revenue impact? Lucas: In 2021, her first full year with KeHE, revenue jumped from 800K to 2.8 million. The subscription added another 600K. So she tripled in one year. But she also had to invest heavily in packaging and hires, so profit actually dipped. It was a classic growth for profit trade-off. Luna: So she had to stomach lower margins for a couple of years. Lucas: Right. By 2023, she was back to healthy margins—around 12 percent net—and revenue hit 7 million. Last year, 2025, they closed at 12 million. And she told me that the subscription base is now 8,000 strong. Luna: If today's episode gave you a practical insight—like the subscription model or the distributor strategy—the show stays ad-free because of listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. That's literally how this keeps going. Lucas: Yeah, it's a small gesture that makes a huge difference for us. And we really appreciate it. Now, back to Maria's story—one more thing I found fascinating was how she handled the human side of scaling. Luna: What do you mean? Lucas: She went from being a solo founder to managing a team of 25. She told me the hardest part was learning to delegate. She used to taste-test every batch herself. At scale, that's impossible. So she hired a quality assurance manager and put detailed specs in place. Luna: Letting go of control is often the biggest hurdle for entrepreneurs. Did she have any systems in place? Lucas: She implemented a simple ERP system—sort of a scaled-down version of NetSuite—to track inventory, orders, and production. That gave her real-time visibility without having to be in the plant. She also set up weekly all-hands meetings to keep communication flowing. Luna: So it wasn't just about fixing distribution, but also building an organization that could handle growth. Lucas: Exactly. The distribution fix was the catalyst, but the organizational changes are what made the growth sustainable. If you're a small business owner stuck at that sub-1 million mark, Maria's story shows that distribution is often the hidden ceiling. But you need to address the operational backbone too. Luna: So what's next for Fiery Fuego? Are they going national? Lucas: They're already in 1,200 stores, and they just launched in a major club channel—think Costco-like. They did a one-month test in 50 locations and sold through faster than expected. So they're scaling that. I think we'll see them hit 20 million within two years. Luna: That's impressive. And a great example of how fixing one thing—distribution—can unlock the next level. Lucas: It really is. Next week, we're looking at a completely different kind of business: a residential painting company that hit 15 million by standardizing its estimation process. That's a good one if you're in the trades.